KUALA LUMPUR (Dec 3): Kenanga Investment Bank and BIMB Securities have downgraded their ratings on the telecommunication (telco) sector to “neutral” from “overweight”, following the third quarterly results last week.

Telco players delivered mixed performance for the latest quarter, but most of the players experienced a downward trend in their postpaid average revenue per user (ARPU), according to the analysts.

Kenanga noted that CelcomDigi Bhd’s (KL:CDB) postpaid ARPU slipped to RM61 in the third quarter of 2024 (3QFY2024), while Maxis Bhd’s (KL:MAXIS) postpaid ARPU continued to decline quarter-on-quarter, reaching RM67 compared with its high of RM73 in 4QFY2022.

Nonetheless, subscriber net adds remain strong for both key players, they said.

“Looking ahead, we expect inflationary pressures to impact ARPU, as consumers reduce spending and opt for more basic data services,” BIMB said in a separate note on Tuesday.

High-value postpaid plans, which could support ARPU growth, are expected to remain limited due to the maturity and saturation of Malaysia’s mobile market, which boasts a penetration rate of nearly 150%, said BIMB.

“In the prepaid segment, we foresee minimal ARPU improvement in the near term, given current telco strategies,” it said.

Prepaid demand could remain weak, BIMB said, due to a slow recovery in roaming contributions and limited growth prospects from migrant workers and tourists.

Slow 5G monetisation, uncertainty on second network

BIMB has also flagged concerns over the slower-than-expected monetisation of 5G technology in Malaysia.

“The government’s approach of avoiding additional charges aims to optimise service usage and improve the standard of living, which shifts the focus of 5G monetisation to the enterprise segment,” it said

“However, we believe it will take longer to fully capitalise on enterprise 5G opportunities at the current pace,” it flagged, noting that both CelcomDigi and Maxis have recorded a steady enterprise business segment, but have yet to reflect significant contributions from 5G services.

Kenanga, meanwhile, said that it previously anticipated clarity on the second 5G network by 1QFY2025. However, U Mobile's selection has extended this uncertainty.

“U Mobile’s win has raised more questions and may potentially lead to a more convoluted outcome for the leading MNOs (mobile network operators, like CelcomDigi and Maxis),” it said.

Nonetheless, both Kenanga and BIMB have a top pick on Telekom Malaysia Bhd (KL:TM) as the primary beneficiary of providing services to both the public and private sectors.

Separately, Kenanga also selected CelcomDigi among its top picks due to its largest mobile subscriber base in Malaysia, while BIMB picked TIME dotCom Bhd (KL:TIMECOM) on its positive long-term business outlook and strong demand for data and data centres.